By Ashley Oblinger and Scott Zucker
While credit cards provide for easy, convenient payment transactions, merchants have long experienced the anguish of fees charged by the credit card companies. Since transaction fees (also called “swipe fees”) can be as much as 3 percent of each charge, self-storage operators have looked for ways to offset the costs.
Previously, agreements with credit card companies prohibited business operators from passing these fees on to consumers. However, this changed after merchant groups filed an anti-trust class-action lawsuit against Visa and MasterCard in 2013. The parties entered a settlement agreement that provided, in part, that Visa and MasterCard would grant merchants the ability to charge fees to customers who use a credit card for payment. The settlement was finalized in December 2013.
American Express is currently involved in a similar class-action lawsuit and reached a settlement that would have mirrored the Visa/MasterCard agreement; however, the court rejected it due to attorney misconduct. It’ll be important to keep an eye on this case as it proceeds.
Can You Charge a Fee?
In light of the agreement, many merchants have attempted to offset their swipe fees by charging a fee to the buyer, often called a “credit card surcharge” or “checkout fee.” However, before moving forward, you must be aware of applicable state laws, as several states, including Colorado, Connecticut, Kansas, Massachusetts, New York, Oklahoma and Texas, strictly prohibit these surcharges. More states are proposing similar legislation.
The surcharge laws in the above mentioned states all contain similar language. While the laws in Connecticut, Massachusetts, Oklahoma and Texas prohibit only sellers from imposing surcharges, the laws in Colorado and Kansas provide that sellers and landlords are barred from charging such fees. In those first four states, the law also states that discounts offered to induce payments by cash, check or other means not involving a credit card aren’t considered a surcharge as long as such discounts are offered to all prospective buyers.
Federal Court Battles
Statutes prohibiting merchants from charging credit card surcharges have come under attack in the past few years. In October 2013, a U.S. District Court in New York found the law to be unconstitutional, as it banned credit card surcharges but didn’t ban merchants from offering discounts to customers who pay by cash. In September 2015, the court of appeals revived the law, finding it doesn’t violate retailers’ free speech or due-process rights under the Constitution. The New York law remains in place today.
In February 2015, a federal court in Texas ruled the law was valid, finding it didn’t violate First Amendment rights because it only regulated prices. This ruling was appealed, but the appellate court upheld the law. It’s now against the law in Texas to assess charges for using a credit card to make payments.
In March 2015, a U.S District Court in California found the law to be unconstitutional, as it restricted consumers’ freedom of speech and was too vague. The judge stated retailers could increase the price of a product and then discount it, yet they couldn’t add a surcharge to the price to make up for credit card fees, even if the price was the same in both instances. The case is currently on appeal in the 9th Circuit; but in the interim, a discount for not using a credit card is legal.
In November 2015, the 11th Circuit Court of Appeals reversed a district-court decision and found that Florida’s law banning credit-card surcharges violated the First Amendment, as it was an unlawful restriction on free speech. The court of appeals also held that businesses could offer discounts to customers who use cash instead of credit cards. Therefore, it’s currently legal in Florida to charge a surcharge.
Credit Card Company Rules
While the vast majority of states permit credit card surcharges, merchants who wish to charge such fees are subject to various rules imposed by the credit card companies. For example, Visa and MasterCard have set caps on the amount of the surcharge. Additionally, both require a merchant to notify the credit card company in writing (usually at least 30 days in advance) if it wants to charge such fees. In some cases, the surcharge must be the same for all transactions of that particular product. Moreover, the Visa/MasterCard settlement provides that if merchants accept other credit cards, they can’t assess a surcharge to customers using Visa and MasterCard unless a similar surcharge is assessed for the use of other cards.
If you wish to start charging fees on credit card purchases, consult with an attorney regarding your state law, then contact your credit card company to let it know of your intent. Also speak with the company regarding its rules for assessing surcharges to ensure you avoid violating your agreement.
Ashley Oblinger is an associate and Scott Zucker a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, which specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Zucker is a frequent speaker at self-storage industry events, author of “Legal Topics in Self Storage: A Sourcebook for Owners and Managers,” and a partner in the Self Storage Legal Network, a subscription-based legal service for storage owners and managers. For more information, call 404.364.4626; e-mail [email protected]; visit www.wzlegal.com.